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Trust Department Quarterly Newsletter 3rd Quarter 2007
More Thoughts on Retirement Plans As more of our clients near retirement age and the stock market reaches new highs the question becomes how aggressive or conservative should we be with our nest egg of retirement dollars. Americans now hold 16.4 trillion dollars in IRA’s, retirement plans and annuities. This accounts for roughly 40% of household financial assets. Therefore, in addition to planning properly for distributions as we discussed last quarter, one needs to be sure the retirement dollars are working to one’s best advantage, as one may be drawing on these monies for 30 or more years. An old rule of thumb was that the bond or fixed income portion of your nest egg should be equal to your age, with the balance in equities. Therefore, at age 65 you would have 65% in bonds and 35% in equities. But with people living longer this old rule may be just that. Kiplinger’s Financial Advisor recently suggested that those of us in the early retirement stage have at least 50% of our funds in good solid equities and the balance in bonds. They go on to state that it’s a good idea that one’s equity portfolio never go under 20% of assets. How does your retirement nest egg stack up with your goals? If you visit our website at security-banks.com in the upper right hand corner of the site you will see a heading called financial tools. By going into financial tools and clicking on retirement planner you will be asked a number of questions, which will give you a projection of how your plan will work or what you need to do now in order to meet your goals. We also have used this tool to show clients that they do or do not have sufficient accumulation of funds to spend as they would like in retirement. We suggest that you utilize this tool, as it helps to paint a very clear picture of what your retirement financial situation will be like. We also would be more than happy to sit down with you and go through this exercise at no cost.
The Stock Market The stock market actually increased in the third quarter, which has not taken place in the summer months for several years. The Dow Jones Industrial Average increased 3.6% during the quarter and the S & P 500 was up 1.6%. On a year-to-date basis the 30 Dow stocks are up almost 4% more than the 500 stocks that make up the S & P index. The stock market also experienced one of its most volatile quarters, as the Dow average advanced to over 14,000 in mid-July before it dropped over 10% by mid-August and then increased almost 11% to close at 13,895. We anticipate during the balance of the year the stock market will continue to experience volatility. As an example of the volatility of the stock market we can look at Walgreen, who announced their earnings for the fiscal fourth quarter on Monday, October 1. Their income for the quarter was 1 cent per share less than the previous year even though sales were up 10.3%. The stock went down over 15% on Monday, October 1. Citigroup (one of the largest banks) announced on October 1 that they expect to incur 5.8 billion dollars in additional expenses due to their lending problems. Citigroup went up 2.2% on October 1. With the announcements of third quarter earnings as we proceed into the month of October we would anticipate there will be more surprises. We would hope the market would not react as it did with Walgreen. The Bond Market For the past several quarters we have experienced an inverted yield curve. This means that short term interest rates were higher than the longer term rates. This has started to correct itself and we now are seeing a normal yield curve in which the longer you go out on the duration of your investment the more you are rewarded from an interest rate standpoint. The Federal Reserve reduced their rate by ½ of 1% during the last quarter. This helped to drive the stock market up at the end of the quarter. It is also felt that the Federal Reserve will most likely decrease the federal fund rate again before the end of the year. The Federal Reserve Board is making their decisions based upon their concern for inflation as well as the problems with sub prime lending and concern they have with the country going into a recession. Short term interest rates were driven down during the quarter due to some extent to the sell off of the stock market that took place in mid-August. This put a lot of money into safer investments. However, we do anticipate that as the need for money at the federal level continues to increase the rate on treasuries will increase towards the end of the year. Milton Berle’s Definition of a Committee “A committee is a group that keeps the minutes and loses hours.” |
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